New York Addick

“When a man with money meets a man with experience, the man with experience leaves with money and the man with money leaves with experience.”

Thursday, April 14, 2016

SkyBet Chumpionship

With relegation for Charlton virtually assured and bad feeling towards the owner highly elevated, I thought it was about the right time to stand back and provide some high level context to what it means to own a club in the Championship.

Specifically for Charlton I also wanted to understand better to what extent we had underachieved versus reasonable finance-based expectations.

An analysis of the accounts of all 24 clubs currently in the Championship follows below. The accounts were all for the year-ended 31 May 2015 or 30 Jun 2015, with the exception of Bolton whose accounts remain outstanding and are thus analysed to 30 Jun 2014 only.

Some minor assumptions or estimates may have been required due to certain complexities, and these have been noted below where material.

It is important to bear in mind that direct comparisons between clubs is challenging given the impact of recent spells in the Premiership (and thus parachute payments), but there are ways to deal with this as noted below.

TURNOVER (£m)
A league table of turnover follows - in order to equalise for Premiership-related turnover (recipient clubs marked **), matchday turnover only is shown in brackets too:

Unsurprisingly the clubs with the highest turnover are those that spent last year in the Premiership (QPR/Hull/Fulham) or are in receipt of Premiership parachute payments.

The disproportionate impact of TV money on turnover meanwhile is emphasised by the fact that for example Burnley generated less matchday income than say Ipswich which had similar attendances in a division below.

The dire position of Bolton is emphasised meanwhile by the fact that with parachute payments ending at the completion of this (relegation) season, they will operate with just £2-3m of matchday income (and modest income from elsewhere) in League One.

Amongst the clubs with the highest 'normalised' turnover (excluding Premiership-related), it should be no surprise that Brighton, Middlesbrough and Derby are performing well whilst conversely Leeds and Forest are notable underachievers.

With regard to those clubs fortunate enough to be in receipt of Premiership-related revenues, it is clear that (so far) they range from the seemingly 'well managed' (eg. Burnley, Hull) to the veritable 'basket cases' (eg. Bolton, QPR, Birmingham).

From Charlton's perspective as the 18th and 15th ranked club respectively for overall turnover and matchday turnover, our base expectations at the start of the season ought to have been modest but clearly relegation would not have been predicted in this simple model.

Although not likely to be significant either way (and not outlined here in detail), somewhat oddly despite our attractive London location we are ranked 21st for 'commercial' income, ahead of only Brentford, Bolton and Preston.

WAGES (£m)

The analysis below shows total wages and salaries (for all club employees) but obviously playing staff receive the significant majority.

Several studies have shown the clear correlation between payroll and success so notwithstanding the need to take into account the impact of recent spells in the Premiership, this ought to have served as a better 'predictor'.

In order to better assess 'sustainability' and to thus understand which clubs are taking a short-term gamble on success, the figures in brackets show wages and salaries as a percentage of overall turnover.

Again the analysis is skewed by those clubs which have recently been in the Premiership. As expected however the speed with which they have ratcheted down their wage bill is generally a function of how long ago they were relegated (ie. Birmingham 2010/11, Wolves/Blackburn/Bolton 2011/12, Reading 2012/13, Fulham/Cardiff 2013/14, Hull/Burnley/QPR 2014/15 etc.).

However it is notable that Burnley had a lower wage bill in 2014/15 than their arch rivals Blackburn despite playing one division higher - unsurprisingly perhaps this self-control (just 32.1% of turnover) left them in a strong position to mount a successful campaign this season.

Meanwhile with Blackburn's parachute payments ending at the end of this season, their financial position becomes extremely perilous.

The problems of QPR are well understood, but the failure notably so far of Cardiff, Reading or Fulham to bounce back to the Premiership puts considerable pressure on them to put their houses in order next season.

With wages at around 150% of turnover, both Nottingham Forest and Brentford are the standout teams in terms of 'having a gamble' despite no Premiership-related revenues. The latter may be adopting a 'Moneyball' approach to scouting but it is ironically backed by real money too.

As noted in the turnover analysis, the relatively successful campaigns of Brighton, Middlesbrough and Derby this season should be little surprise given they each spend 75-90% of their high turnover on wages.

At the other end of the scale, Rotherham seem to be extremely efficiently run with a wage bill of just £3m on turnover of £5.2m, yet it would appear to be enough for a second consecutive season of survival in the Championship.

Similarly Sheff Weds have likely outperformed wage-based expectations, although their payroll in 2015/16 is likely higher than the accounts from last season imply.

Charlton are 20th in the payroll league which perhaps should have served as the single most realistic predictor of where we ought to have finished this season (in other words we failed to meet expectations which however should not have been very high to begin with).

Indeed with payroll as a percentage of turnover right around the 88% average for all 24 clubs, we are neither taking any reckless Forest or Brentford-esque gambles nor putting much aside for the proverbial 'rainy day' (which unfortunately is firmly around the corner). More about that at the end.

DEBT (£m)

The majority of football club debt is owed to controlling shareholders (as opposed to banks etc.) and has thus been termed 'friendly debt' since they have virtually nothing to gain from pushing the club into bankruptcy.

However it does require the ability to continue funding ongoing deficits and/or the ability to find another 'greater fool' to step in and do so going forward.

To analyse debt levels, I show below the total of all creditors (which also includes some other minor non-debt items like deferred season ticket income).

The predictable 'basket cases' are at the bottom of this particular table with some eye-watering amounts of debt, most of it accumulated in recent seasons.

Again the likes of Rotherham and Burnley are highlighted as amongst those which are run on more sensible lines, whilst Sheff Weds again screens well.

Conversely the viability of the likes of Forest, Ipswich, Middlesbrough and Brentford will surely be called into question unless promotion to the Premiership is achieved in the next couple of seasons.

Charlton are in the middle of the pack but debt levels have accelerated meaningfully since relegation in 2007 and will continue to do so in League One - Duchatelet is firmly at a crossroads regardless of his stated commitment to ownership of the club.

PROFITS/LOSSES (£m)
Below I have put the most recent year's net profit/loss which is somewhat insightful as a single year's snapshot, but is nonetheless potentially impacted by significant one-off transactions like transfers (eg. MK Dons and Dele Alli).

Again I have marked the clubs in receipt of Premiership-related payments as **:

Again a familiar picture emerges with Burnley's sensible Premiership season earning them rich reward financially.

For those clubs in receipt of Premiership-related payments and still generating substantial losses (ie. Blackburn, Fulham, QPR, Bolton), the medium-term outlook is likely to be dire and it is no surprise that they have each struggled on the pitch this season.

Again the extent to which Forest and Brentford have gambled is apparent (the losses are obviously related to earlier analysis of wages), whilst Rotherham's sensible approach is again evidenced here with limited losses of £600k.

Charlton are in the middle of the pack with losses somewhat reduced from the prior season, but turnover in League One is likely to fall by 50% or so. Keeping the losses at similar levels will require a hatchet job on the squad however.

SUMMARY
To bring it all together, I have put together a proprietary ranking index to list the 24 clubs in order of relative financial stability (the key word being 'relative' since in absolute terms none could be so described).

In an ideal world the table below would reflect the actual one but in reality clubs must continually weigh up the potential upside of a short-term gamble versus the long-term security of the club.

Moreover the ability of owners to make good rational decisions is highly questionable in many cases, as some towards the bottom of the table below have found out (or will likely soon do so).

Somewhat reassuringly Charlton are positioned firmly in the top half, although the downside of greater long-term sustainability is unfortunately the enhanced risk of near-term disappointment:

Sunday, March 13, 2016

Flawed Execution

,The club's accounts to 30 June 2015 have recently been filed at Companies House (despite being signed in late-November).

Given the understandably toxic relationship between supporters and the Board, these accounts arguably represent one of the very few sources of real 'truth''.

My analysis follows below and it relates interchangeably to both Charlton Athletic Football Club Ltd (the 100%-owned subsidiary) and Baton 2010 Ltd (the parent). My personal interpretation and opinions are given in brackets:

The 'Group Strategic Report' contains a notable gem, "It remains a target of the Board to grow the current attendance levels to a target of 20,000 in the Championship." (If this report had been written in March 2016 rather than November 2015 [or earlier], I suspect this item would have been omitted for obvious reasons).

Turnover was slightly down from the prior year (£11.8m vs £12.7m), explained by the run to the FA Cup quarter-finals in 2013/14.

£9.5m of financing was injected into the club by way of additional loans from Staprix (this represented continued funding of operational deficits, plus other outgoings such as capital expenditure and bank debt repayment [more on this later]).

Wages and salaries were unchanged at £11.5m though this still represents nearly 100% of turnover (a simple statistic which encapsulates the madness of the football finance model).

The operating loss was down from £5.9m to £4.4m thanks to the sale predominantly of the homegrown pair, Gomez and Poyet (if my interpretation of the accounting treatment is correct, the total transfer fees received [including from others eg. Lepoint, Morrison...] was a total of £4.47m, of which some remains payable [see below]).

Perhaps a more telling statistic is that the club now has £73m of cumulative tax losses (a more telling data point about the flawed football business model it would be hard to find. Indeed even since Baton 2010 Ltd was created just prior to the Slater/Jimenez purchase, cumulative losses have been nearly £27m.).

Total full-time club employees fell from 161 to 144, almost entirely explained by the non-football side (perhaps supports the commonly held view [evidenced by various well-publicised cock-ups] that the club is insufficiently resourced).

Exceptional items included £162k relating to 'staff restructuring' (it seems reasonable to assume this relates to the sacking of Bob Peeters mid-season. Curiously the amount paid in 2014/15 is exactly 50% of the amount paid in 2013/14 [ie. £324k] - one might conclude that if one briefly tenured ex-manager was paid six months' salary in severance, and another longer tenured ex-manager [Powell?] was paid twelve months' salary, then the going rate for a Charlton first team coach might be around £324k pa. Then again it may just indeed be a coincidence!).

Just under £1m was paid to Staprix in the form of interest payable on its loans to the club (at 3% pa) - debt outstanding to Staprix was approx £40m at 30 Jun 2015 (it is not entirely clear why Duchatelet would not provide these loans interest-free, except perhaps to inject a sense of commercial reality into an inherently uncommercial investment. Some fans are deeply concerned about this aspect of the club's financing, but injecting debt into a perennially loss-making business is arguably akin to equity. Moreover an interest rate of 3% hardly reflects the true risk of lending to the club - in short I view this aspect as virtually irrelevant).

Former directors continue to be owed £7m, contingent upon promotion back to the Premiership (now if anyone deserved even a meagre 3% return....).

Approx 2/3rds of the outstanding bank loans were repaid during the year (total £1.8m) and are now <£1m and due within one year (reassuringly or worryingly [depending on your point of view], the club will shortly be in a position where the only stakeholder with a enforceable claim on the club will be the owner himself).

No directors fees were paid during the year (so either Katrien Meire is working on a pro bono basis or more likely she is being compensated through some other entity, possibly directly by Staprix).

Transfer fees of £1.7m were paid during the year and these predominantly related to Bauer and Ba who were signed before fiscal year-end (although Bauer had been moderately impactful before he got injured, these signings hardly scream 'value for money' compared to what else might have been available).

£1.2m was spent in the form of fixed asset capital expenditure (presumably representing improvements to the stadium, pitch and training ground).

'Accruals and deferred income' of £3.2m must mainly relate to season ticket revenue earned prior to 30 Jun 2015 but relating to the 2015/16 season (since this represents >25% of total turnover and >60% of ticket/matchday turnover [and is received upfront], it emphasises how powerful a season ticket boycott could be).

Up to £6.2m of additional receipts may be due if former players sold achieve certain targets (this is £2m higher than the previous year suggesting that Poyet and Gomez were sold with contingent payments included in the agreement).

On a similar note the amount for 'trade debtors due after more than one year' is a nice round £1.500m (reading between the lines, it is quite possible that rumours of a £3m initial fee for Gomez were true with the amounts payable in two £1.5m instalments).

Rather more curiously the amounts that Charlton may have to pay to other clubs contingent on its own signings achieving certain targets, increased by £1.3m to £1.7m (if Bauer and Ba represented the only significant transfer fees paid during the year, did they really also need to include £1m+ contingencies? For the club's sake let's hope this is only payable upon promotion to the Premier League and not mere appearances etc.).

Between 30 Jun 2015 and the signing of the accounts in late-Nov, £300k was received in the form of transfer/loan fees (there is no additional transparency given, but this is likely to have included Rhoys Wiggins [who is now back in the Premier League!]).

Similarly between 30 Jun 2015 and late-Nov, a further £2.6m was paid out in transfer fees (this would include Sarr, Kashi and Bergdich, as well as a possible loan fee for Makienok).

In truth, there were not many huge surprises in the accounts although the biggest frustration is that unlike fans of say Blackpool, we cannot seriously accuse Duchatelet of fleecing the club.

Staprix has now injected £40m in total (in the form of the initial deal with the former owners and the funding of ongoing deficits since) and his 'return' is a measly 3% pa, equivalent to the sort of return he could generate in blue-chip 'investment grade' bonds with virtually no risk. He doesn't even get to enjoy watching the matches.

The club continues to pay transfer fees including £4.3m for the players signed last summer, only two of which (Bauer and Kashi) could be described as good additions.

Indeed the transfer fees paid almost exactly mirror those received during the full period examined, so even the argument that Duchatelet wants the club to become self-financing through player sales seems very flawed.

Meanwhile the accounts prove that solid Championship players like Wiggins and Morrison are being offloaded for peanuts, yet in both cases the greater value to their new clubs is obvious as subsequent developments show.

So in short one must conclude that (for reasons unclear) he is either acting in a wholly irrational and non-commercial manner with regard to this investment, or more likely he has perfectly good intentions but has executed in a remarkably bad way whether due to naivety or gross incompetence.

With League One football looking increasingly inevitable, the 2016/17 accounts could be a veritable horror show.

Thursday, January 21, 2016

Emails Update

(This post is a parody - any similarity to actual events is purely coincidental.)
As regular readers of this blog will know, when the club is in crisis I like to use my stealth IT skills to hack into the club's emails to get a sense as to what is going on behind the scenes.

Unsurprisingly a picture of a dysfunctional club emerged - the story begins towards the end of last season:

---

From: katrien@cafc.co.uk
To: marketing@cafc.co.uk
Subject: WTF!

I KNOW I SPEAK ENGLISH WITH AN ACCENT, BUT I SAID "SAX ON THE PITCH" YOU UTTER MORONS......

I'm honoured that you would 'tap me up' with regard to the potential managerial vacancy at the club - of course I would consider moving up from my current role as Senior Vice President of the Continental Network of Unified Transfer Strategists (CNUTS).

With regard to your question on realistic goals, I think automatic promotion is a long shot at this point but play-offs are well within reach - suffice to say I would be honoured to lead this team out at Wembley.

Kind regards

Karel

Ps - not sure what you meant by providing contact details for some referees? I once shook hands with Howard Webb but I can't claim to have his phone number.

As we had both hoped and expected, Karel is proving to be a veritable managerial phenomenon - two wins on the spin including back-to-back goals for JJ (his legs may have gone but at least his head hasn't!).

Let's just wait for one more triumph before blitzing the media with news of his permanent appointment.

Given limited departmental resources, a short form scouting report follows:

They're in League One.
They play in blue and white stripes, especially at home.
Their ground is on the outskirts of the town.
They're quite physical.
They'll pass it on the ground briefly and then hit it long.
They've a tricky black winger who creates and scores goals (but we understand he may not be available).
Their manager is keen.
Erm...
That's it.

Friday, February 20, 2015

Accountability

The audited accounts of the club (and its owner Baton
2010 Ltd) were published on the Companies House website earlier today.

The
accounts to 30 Jun 2014 reflect the final six months of the Jimenez/Slater
regime and the opening six months of the Duchatelet regime (or more
specifically Staprix NV, a company owned 95% by Roland Duchatelet).

This division makes it difficult to draw very strong conclusions about what has changed financially but nonetheless some interesting observations are outlined below , with some additional interpretations of my own.

As
has been the case for several years, a review of the accounts is complicated by
the addition of the Baton 2010 Ltd entity which is owned by Staprix and in turn
owns the club.My comments below relate
to the club’s accounts unless stated otherwise:

-The ‘strategic report’ at the front of the accounts make
reference to the lack of investment in the squad during summer 2013 and the
problems with the pitch (caused by collapsed drainage) ;

-Average attendances fell from 18,480 to 16,130 but this still
placed us in the top half of the Championship attendance table – the report
additionally notes it is the ‘priority of the Board’ to grow attendances to
20,000 in the Championship ;

-The club aspires to achieve ‘Category 1’ status for its
Academy ‘as soon as possible’, but this will require significant development of
the training facilities etc. ;

-Turnover increased from £11.9m to £12.7m – this was explained
by an increase in Premier League ‘solidarity’ payments and matchday revenue
£0.7m higher than the previous season, explained entirely by the FA Cup run to
the Sixth Round - indeed without the additional Cup revenues, matchday
revenue would understandably have been down (given lower average attendances) ;

-Commercial income was moderately higher at £1.5m as the
result of ‘new sponsorship and preferred supplier contracts’ ;

-The club made an operating loss (before transfers) of £7.2m
(2013 : £7.4m) – profit from the disposal of players (which is not the
same as ‘transfer fees received’) was again £1.7m, the same as the prior year ;

-Staff costs were down slightly at £11.5m (2013 : £12.0m),
of which £10.4m was wages/salaries - moreover this includes £0.3m of ‘severance
costs’ relating to former employees - once severance costs are added
back, this implies staff costs equal to 88% of turnover ;

-The above staff costs were spread across 161 employees (2013 :
146), of which 101 are on the football side – a quick ‘back of the envelope’
calculation would suggest that 75% of staff costs are accounted for by the
first-team squad (say 25 players) and a further say five key coaching staff –
on this basis it implies these 30 key playing staff earn approx £5k per week,
which seems about right for a Championship club with no legacy Premier League ‘overhang’ ;

-Intangible assets on the balance sheet (ie. The non-amortised
portion of the cost of player registrations) increased by £3.3m, reflecting
particularly the acquisition of Igor Vetokele just before financial year-end ;

-Directors fees of £112.5k were paid (2013 : £150k), all
of which was paid to a single director – since £150k is equivalent to £12.5k
per month and 9 x £12.5k is £112.5k, then I’d be inclined to assume that this
was paid to Martin Prothero for his six months work (with a further three
months notice ?) – however this begs the question how Katrien Meire is
being paid since no other directors’ remuneration is disclosed ;

-There is a new item in the accounts called ‘Interest payable
on loans from ultimate parent company’ (ie. Staprix NV) – in other words the
ongoing operating losses are being funded (as they must somehow) by the
owner(s), but not on an interest-free basis but at 3% ;

-Although it does not seem very ‘exceptional’, the £89k for ‘pitch
cover costs’ are included in ‘exceptional items ‘ ;

-One of the most interesting issues concerns player transfers,
or as they’re known in accounting circles ‘intangible fixed assets’ – the amount
spent in fees during the year is very clear (£4.4m), and this relates mainly to
the purchases of Messrs. Vetokele, Parzyszek, Nego and Ghoochannejhad.As has been well-documented, the latter two
were ‘in network’ signings and thus any fee (which may of course have been
nominal) is effectively an intercompany transfer, however the rumoured fee paid
for Vetokele (and to a lesser extent Parzyszek) really do appear accurate.Whilst fans may question the long-term plan
for these players within the network, £4m+ is a meaningful outlay by a Championship
club without a Premier League parachute ;

-The club only received £194k in transfer fees during the year
which seems exceptionally low given it includes Stephens, Kermorgant, Button
and Smith – admittedly as noted below there may be contingent payments to
follow, but the sale (particularly of Stephens/Kermorgant) really does seem to
have been driven by wages and a desire to earn at least some fee, rather than
just let their contracts expire in the summer ;

UPDATE #2: The above instinctively felt wrong as much as it was clear from the accounts that £194k was the sum received on the sale of intangible assets. Moreover I couldn't reconcile this amount with the 'profit on disposal of players' of £1,718k.A review of the 2013 accounts shows a consistency of accounting treatment whereby the amount of the fees which offset any unamortised carrying value of the players sold (£194k for the year to 30 Jun 2014) is shown as cash received on the 'sale of intangible fixed assets' (because it is effectively only a balance sheet transaction), but any excess is accounted for as 'profit on disposal of players' (£1,718k) within 'cash from operating activities'.I would thus (now) state with some confidence that instead transfer fees received (including an add-on relating to Jonjo Shelvey) were £1,718k + £194k = £1,912k. Moreover it is likely some of this remained outstanding at year-end given the relatively large 'trade debtors' balance of £906k. Apologies for any earlier confusion! (the treatment really is not especially clear).

-Contingent assets on players sold (if certain hurdles are
surpassed eg. appearances) increased significantly from £3.0m to £4.2m – it is
easy to assume this relates to part of Diego Poyet’s move to West Ham, but this
may have been infeasible (he was out of contract after all) and anyhow belong
in the following year’s accounts – instead the difference as suggested above may
simply relate to the aforementioned four in-contract players who were sold for
a fee ;

-Contingent liabilities on players purchased are however only
£0.4m ;

-Between 30 Jun 2014 and the date of the accounts, player
sales generated a further £891k – this in my view is more likely to relate to
Poyet and Michael Morrison ;

-£755k was added to the value of tangible fixed assets
(stadium, offices etc.) which presumably includes some combination of new
seats, undersoil heating, training ground improvements etc. (dependent upon the
date of the works) ;

-Amounts owed in bank loans/overdraft fell from £4.8m to £2.7m
which must be seen as a positive development - Richard Murray continues
to personally guarantee an overdraft up to £650k (it’s not clear why he is
still obliged to do so) ;

-However as expected this was more than offset by an increase
in ‘amounts owed to parent company’ which increased by £12.9m during the year –
if my maths is correct, this can be explained in terms of : Cash outflow
from operations £4.8m, Net transfer fee outlay £4.2m, Purchase of tangible
fixed assets £0.8m, Bank loan repayment £2.1m, Interest £0.6m, Other/Rounding
£0.4m – who’d be a football club owner ?;

-The legacy loans owed to former directors remain at £7m as
per the previous year ;

-Finally between 30 Jun 2013 and the date of the accounts,
agents fees of £327k were paid on new signings (this would include the likes of
Bikey, Gudmonsson, Henderson etc.).

A
very brief summary for the less financially literate would thus be as follows :

-The club continues to generate substantial losses ;

-These losses are being financed by low-interest parent
company loans (with no fixed repayment schedule) ;

-The amounts owed to the bank have been cut substantially;

- The average first-team player earns approx £5k per week;

-Substantial transfer fees have been paid out for new players
(£4m+ in the last fiscal year, which does not include Gudmonsson and others) ;

-Transfer fees received for Stephens, Kermorgant, Button and Smith (plus an add-on for Shelvey) amounted to just under £2m.

Thursday, April 03, 2014

Red Army

The audited financial statements of the club were finally posted to the Companies House website this week.

My summary follows with personal thoughts and interpretations in italics.

All references are actually to the financial statements of Baton 2010 Ltd, the 100% owner of both Charlton Athletic Football Company Ltd ("the club") and Charlton Athletic Holdings Ltd ("the property investment subsidiary").

As a reminder the accounts are for the year ended 30 Jun 2013 and thus effectively comprise a summary of the first season back in the Championship.

The accounts were signed off by the auditors on 17 Jan 2014 - thus it seems the club waited until the last possible moment to file them (31 Mar deadline) for reasons unclear.

The accounts confirm that Staprix NV acquired Baton 2010 Ltd (from CAFC Holdings Ltd) on 3 Jan 2014 - interestingly they note that Staprix NV is owned only 95% by Roland Duchatelet suggesting a 5% minority owner may exist (although it may well be a related party such as a family member or trust). Nonetheless this is potentially a curious observation.

Turnover was 39.3% higher at £11.9m - this was explained as expected by a substantial 257% increase in 'central income' (ie. TV), even though the accounts additionally note that this was the first year of a new three year Sky deal which was valued 26% lower than the previous one. Clearly the dwindling TV revenues in the Championship (as Premiership TV revenues skyrocket) provides a further challenge to any second-tier club seeking to break even.

Within turnover, matchday income was only 10% higher than the prior League One season - the average attendance was only 6% higher at 18,481 which must be a disappointment given the 9th place finish. Indeed there seems a reasonable likelihood that matchday income in 2013/14 may be lower than the League One 2011/12 title season given current (lower) average attendances of only 16,248.

Within turnover, commercial income was 23% lower at £1.4m but this is explained by a change in the way the retail operation is managed (now outsourced to Just Sport), and is thus not meaningful.

The loss on ordinary activities was £6m, down slightly from £6.8m in 2011/12 - the failure to reduce the loss significantly in the Championship is simply explained by an increase in adminstrative expenses almost identical to the increase in turnover (both £3.3m). The largest component of administrative expenses is of course staff costs which rose by £3.1m to £12.0m (including national insurance of £1.3m). As a result, staff costs remain higher than turnover in 2012/13 just as they were in 2011/12 although the ratio has fallen slightly to 100.5% of turnover from 103.7%. Either way this is a wholly unsustainable situation and perhaps pours some water on the idea that we were being run on a shoestring last season. Moreover whilst promotion took us one step closer to the promised land of the Premiership, from a purely financial point of view promotion did not really improve the club's situation at all.

The average total number of employees (excluding temporary matchday staff) rose by 18 to 146 during the year, almost entirely on the playing, training and football management side (rising from 73 to 90) - the wage bill is not categorised separately between those on the playing side and those on the operational side, but if one assumes that those 90 playing staff (representing 62% of total staff) take a 80% share of total staff costs, then it implies average wages per individual of £95k although of course there will be considerable divergence between say the top ten or so best players/management and the rest. A better interpretation may thus be as follows - to use some round numbers, if one assumes that there is a first-team squad of 15 'senior pros', 10 'junior pros' plus 5 key management personnel (Powell, Dyer, Hart etc.) and if one assumed that the 15 senior pros earn say £300k, the 10 junior pros earn say £100k and the 5 key management personnel earn an average of say £150k then these 30 earn a total of £6.25m. If so this would leave £4.4m to be spread amongst the remaining 116 total staff (146 - 30) implying an average wage of £38k for the remainder. Given this includes some well-paid operational staff like Martin Prothero, as well as a myriad of coaches, Academy pros, medical staff, commercial staff etc. (In addition to less well-paid admin staff) this doesn't appear an unreasonable set of 'guesstimates' to me.

The highest paid director was paid £150k - others have suggested this was Martin Prothero and I've no reason to disagree.

The interest burden on the club's debt was £360k, down slightly from £384k - the interest burden is not especially significant at just 3% of turnover but this is a little misleading given the vast majority of the debt is not interest-bearing (so-called 'friendly debt' owed to the holding company and former directors).

During the year £813k was paid to acquire player registrations - these would appear to largely relate to Lawrie Wilson and David Button, and almost certainly also promotion-related add-ons relating to transfers from the summer of 2011.

There was profit on players sold of £1.7m arising predominantly from contingent fees relating to Shelvey/Elliott/Jenkinson/Richardson/Hudson/McCarthy and Academy players, Palmer and Huddart (to Chelsea and Arsenal respectively) - it is frustrating to learn that Academy players that most fans wouldn't have heard of are being poached by the big clubs though with the likes of Poyet and Cousins making such a big and public impact at first-team level, hopefully this trend will slow.

Subsequent to year-end, the disposal of player registrations has generated income of £570k - given the date the accounts were signed, this can't relate to Kermorgant, Stephens and Smith. However it may include the likes of Button and some contingency payments on prior sales.

The carrying value of the club's tangible fixed assets (freehold and leasehold property) was revalued upwards following an independent review by £9.6m - this is probably an irrelevant fact (certainly not offering any cashflow benefit) reflecting rising property valuations across the region, although cynics will no doubt point out that this may be interesting news should the club be considering a move someday from The Valley. The flipside of course is that the value of the land we might have to purchase or lease to build a new stadium will have increased too!

Short-term debts (due in less than 1 year) fell slightly as a result of the repayment of £250k due to Richard Murray (as noted in the previous year's accounts). Bank loans and overdrafts remain at £2.2m of which Murray has guaranteed up to £800k.

Longer-term debts (due in more than 1 year) rose as expected by nearly £6m simply reflecting the need to finance the ongoing operational deficit above of exactly £6m. Total debts due in >1 year now total a somewhat shocking £29.7m of which £2.5m are bank loans, £7.7m are former director loans, £15.4m are loans to the parent company ('owner loans') and £3.8m are grants received - the majority of long-term debt remains 'friendly' in nature but the figure will simply keep going up unless either the club breaks even or the new owners perhaps choose to inject equity rather than more debt (or convert one to the other). I continue to remind fans however that the specific nature of the club's debts both now and in the recent past renders administration a highly unlikely possibility (why would owners and/or former directors push the club into administration thus almost guaranteeing a near worthless return?) - this fact is very clearly misunderstood by many fans. On a different note it was good to see that £1.6m of the longer-term (and 'less friendly') bank loans were repaid during the year, reducing the total outstanding to £4.2m (paying a floating rate of LIBOR + 2.5 to 3%).

In addition to the repayment of Murray's £250k short-term loan above, a further £880k of longer-term loans to Murray were also repaid - per the previous year's accounts, £1.55m of Murray's loans became repayable upon promotion to the Championship and it appears that over half of this amount due was indeed repaid. If my calculations are correct therefore, Murray was repaid a total of £1.1m during the year and moreover in Jan 2014 was of course relieved of his 10% stake in CAFC Holdings Ltd, the previous ultimate parent company of the club. In short the club's financial obligations to Murray remain significant but reduced, whilst Murray's quasi 'obligation to the club' (via his equity stake) has been removed as of January.

So in short despite promotion to the Championship, limited investment in new players and a respectable 9th place finish, the club's finances remain perilous with a £6m running annual loss and long-term debt of £30m.

It is not surprising therefore that Duchatelet might wish to adopt an alternative approach, and it is one which we ought to cautiously welcome if only because the approaches that came before have patently failed to deliver stability.

Clubs like ours can deliver footballing success with a degree of financial stability (think Brighton, Burnley, Swansea) or without it (think Portsmouth, Leeds, QPR).

As a fan with hopefully many more decades of support in front of me, I'd personally rather wait longer for a shot at the former than recklessly target the latter.

Wednesday, March 12, 2014

Chris P. Chilly Beef

Reading some of the emotional outpourings of grief from a
meaningful majority of Charlton fans yesterday, one might initially have
concluded Chris Powell must have died rather than merely lost a relatively
well-paid job.

He departed as one of the ten longest-serving managers out
of the 92 clubs, a fact both remarkable and ridiculous for a manager still
rightly described as a ‘rookie’.

At the time of his appointment, I vociferously considered
his success as a Charlton player and his all-round good character as being obviously
true but irrelevant when assessing his suitability for the job.

However it was precisely those qualities which persuaded
Tony Jimenez to take a risk, and although I thought him crazy at the time, with
the full benefit of hindsight it was an inspired move.

His familiarity helped rally the fans at a difficult time
whilst his likeability was key to motivating a newly-built team in 2011/12 to
win 30 out of 46 matches.

The following season was something of a conundrum –
investment in the team was limited but then again the recently accumulated
squad had masqueraded as a Championship team in League One.

Our campaign threatened to drift into a relegation scrap much
as the current one has, but two pivotal wins (Cardiff and Bolton at home) reversed
the momentum completely at vital moments.

Whether you put those turnarounds from two goals behind down
to luck, opposition incompetence, managerial genius (or likely some combination
thereof), their impact was undeniable.

Those two games plus the seven games that followed each generated a
total of 33 points, more than half of our entire season’s total from sixteen games.

It is nonsense to suggest we ‘almost’ made the play-offs –
we accumulated 18 points from our final eight games and still finished
effectively four points short.It was a
virtual mathematical impossibility several weeks before the season ended.

Importantly however the general consensus that we had almost
done so worked against Powell’s best interests, implying to the now
cash-strapped (former) owners that the squad was stronger than it really was in reality last summer.

Whilst the squad clearly wasn’t strengthened last summer, it
is hard to argue it was materially weakened either – the ageing Fuller (who
started only 20 games) and the usually crocked Haynes replaced by Sordell and
Church, with the remaining ins and outs largely being insignificant ‘noise’
around the edges.

If one was being harsh therefore, one might suggest Charlton’s
poor form this season (at least until the takeover) was entirely consistent
with last season’s ‘conundrum’ ie. we rode our luck then, and we have now been ‘found
out’.

Unfortunately for Powell overachieving this way (whether by
luck or otherwise) again somewhat paradoxically did not serve him well in the eyes of Duchatelet given how
things have subsequently transpired this season.

With a wage bill firmly in the League’s bottom half, an accumulation
of 55 points would have represented a reasonable enough return last season.

However looked at with a fresh pair of eyes like Duchatelet’s (unaware
that our points total last season almost certainly flattered us), it would not
be hard to see why he would immediately have grave concerns about Powell’s abilities, even
before any conversation about his plans for player recruitment etc.

The new owner may have been told (politely knowing Powell’s way) that
the ‘players aren’t good enough’ but he might have looked at last season’s
table and the virtually unchanged squad, and simply have disagreed.

Even worse when handed a half-dozen new players in January,
Powell continued to largely prefer the incumbents.It’s not hard to see why the relationship
became untenable.

The agricultural football dished out on a regular basis would not have helped his cause either, even if
The Valley pitch is suitable currently only for agriculture.

Indeed it seems unarguable that Powell produced teams which
were functional rather than stylish, even during the record-breaking 2011/12
season.

It is unclear whether this was an approach designed to fit
the squad at his disposal (implying he could adopt a passing style with different
players), or whether it is the only approach he is comfortable with.

Notably during the disastrous second half to 2010/11, he
clearly tried to get his newly inherited team to get the ball down and play but
it was quickly apparent they weren’t able to effectively.

He certainly seemed trapped at times in his naturally risk-averse
straitjacket, an observation which if true would represent an obvious weakness.The very best managers are flexibly-minded.

However as an inexperienced manager he should be judged less
severely than more seasoned peers, and it’s possible (as many believe) that he
will flourish into one of the very best over time.

Some fans care little about style and only about points but speaking
personally, as I get older I find the former is just as important as the latter
if not more so.

With my free leisure time away from work and family
responsibilities extremely limited, I value seeing good football significantly more
than I used to.

I think a Board will naturally be more patient with a struggling
manager adopting a more attractive progressive playing style, because the ‘optics’
are better (in short they can see what the manager is trying to achieve more
readily).

The fans were patient because they understood the limited
resources and because it was well, Chris Powell.

Unfortunately when a more direct or conservatively set-up team
plays poorly, you risk performances like Sunday’s which are almost impossible
to defend in the circumstances.Even
some of the most ardent Powell supporters must have had their heads turned.

I’m conscious of course that I haven’t yet mentioned
Duchatelet’s plans for player recruitment yet, particularly those borrowed or
acquired (perhaps temporarily) from his own network of clubs.

It seems strange to fear becoming a feeder club when so far
we have only been fed by Standard Liege.If it’s a problem, I think it’s only one for the distant future.

It's worth remembering we’ve always been a ‘feeder’ club, just for different
clubs not one (Liverpool, Arsenal, Chelsea......)

Intereference in team selection is clearly unworkable, but I
have no problem with a manager having only very limited input into recruitment
given how short their average tenure is.

This is the much-feared but actually quite sensible ‘European
model’.

At the other extreme, an absolute managerial veto on sales
(for example in the case of Stephens or Kermorgant), or an effective open
cheque book for purchases is likewise unworkable.

In short there is a huge misalignment of interests – when
was the last time you heard any manager state that he was happy with his
current squad?

It’s certainly possible that Powell was denied any say (let
alone veto) whatsoever which he may be have considered intolerable, but conversely
being told to get on with coaching, preparing and selecting from the squad he
is given is surely not entirely unreasonable either, even if it’s uncommon?

Fans who demand differently seem detached from the financial
reality of the club losing perhaps £5-6m in the Championship.

Berating the person who is stepping up and funding the
deficit whilst daring to try an alternative model surely deserves some respect
(even perhaps from Powell, though we aren’t privy to the exact nature of their
conversations).

The club tried the ‘wealthy fan model’ and it ultimately
failed, and then we tried the ‘wealthy non-fan fronted up by a couple of iffy
geezers model’ and that clearly failed too.

There’s no guarantee the ‘club network’ model will work
either but I at least am prepared to give it a try.

It’s a shame Powell isn’t coming along for the ride but
there’s two sides to every story and I suspect it didn’t have to be like this.

Sunday, January 05, 2014

Cup Double

With Charlton having already played Oxford at home then Huddersfield away in the opening rounds (for us) of the Capital One Cup this season, what are the ex ante chances (see Note 1) of the exact same thing happening in the FA Cup?

Well if my maths is right, it can be estimated as follows:

- probability of Oxford reaching the Third Round: 0.25 (see Note 2)

- probability of Charlton drawing Oxford at home in the Third Round: 0.008 (see Note 3)

Therefore a reasonable approximation of the probability of playing Oxford at home then Huddersfield away in the first two rounds of the FA Cup after ithas already occurred in the Capital One Cup is:

0.25 x 0.008 x 0.4 x 0.73 x 0.016 = 0.00000934 or 107,065/1

To put this in perspective this is less probable than tossing a coin 16 times and getting consecutive heads, or less probable than selecting seven random cards from a shuffled pack and each card being from the same suit.

Indeed whilst the probabilities will obviously be different for any given three club combination, I wonder if it has ever happened before?

Notes

1.‘Ex ante’ in this context means the estimated probability before the First Round of the FA Cup (featuring Oxford) had been drawn.

2.Given Oxford United are riding high in League Two, before the First Round draw is made (see Note 1), I estimate the probability of them winning their First and Second Round ties to be 50% respectively, and thus 50% x 50% = 25% or 0.25.

3.There are 63 other teams in the FA Cup Third Round draw, and an equal chance of being drawn home or away to any of them ie. 1/(63 x 2) = 0.008.

4.As a midtable Championship side, this is a simple estimate of Huddersfield’s ex ante probability of reaching the Fourth Round in any given season – given they were given a relatively straightforward tie (Grimsby away), their actual probability increased significantly but this is not relevant for the calculation which considers the position ex ante (see Note 1).

5.Current bookmakers odds of approx 4/6 imply a 60% probability (ie. 6/10) that Charlton win the tie at the first time of asking, whilst draw odds of 14/5 imply a 26% probability (ie. 5/19) that the tie needs a replay. If a replay is required, I estimate the odds that Charlton still win the tie from that position (possibly after penalties of course) to be 50%. Thus the estimated probability that Charlton reach the Fourth Round is 60% + (50% x 26%) = 73% or 0.73.

6.There are 31 other teams in the FA Cup Fourth Round draw, and an equal chance of being drawn home or away to any of them ie. 1/(31 x 2) = 0.016.